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Read the Case Study Mount Gay Rum Looks to the Future and answer BOTH questions. Use relevant tools and frameworks to evaluate Mount Gay Rum's

Read the Case Study Mount Gay Rum Looks to the Futureand answer BOTHquestions.

  1. Use relevant tools and frameworks to evaluate Mount Gay Rum's strategic capabilities

and the challenges it faces within the world rum market.

  1. Given your analysis of the strategic capabilities and competitive position of Mount Gay Rum, outline and justify a future strategy for the company in order that it might achieve sustainable competitive advantage.

MOUNT GAY RUM LOOKS TO ITS FUTURE

Once the drink of choice among sailors and pirates, rum is undergoing a transformation. Rum is an increasingly popular alcoholic beverage, and major producers who have pioneered new rum products and flavours are shaping its image. While the Caribbean is home to more traditional rum makers, increased competition from Latin America and Asia threaten to disrupt the economies of the rum producing countries.

Eventually the drink became known as rum and was widely produced throughout the Caribbean. Rum production developed in the Caribbean with the development of the sugar plantations. In order to make rum, one begins with sugar cane. The juices from the plant are extracted by pressing the sugar cane stalk. Some rum producers prefer to use molasses instead of sugar juice. Molasses is the product of the sugar refining process. Yeast is added to the sugar cane or molasses and allowed to ferment. The "sugar wine" is then boiled, while the vapour is collected and condensed (distilled). The product is then aged anywhere from one to thirty years or more. Most rum is aged in oak barrels that once held whiskey or bourbon. After aging, the rum is blended and bottled.

There are many different types of rum products. White rums are not aged in oak casks, and may not be aged at all. They are usually used as mixers for drinks such as pina coladas or daiquiris. Golden rums, or regular rums, are aged from 6 months to 2 years. Dark rums, or premium rums are aged for two years or more, and superpremium rums are aged much longer. The dark colour of rum comes from the oak barrels in which the rum is aged. Rum quality is based on age, but four other factors are also important in determining quality. The quality of inputs, type of fermentation, degree of distillation and blending skill are also important to producing a quality rum product. Uniform standards do not exist in the industry, so wide variation exists among the rum producing companies and countries. Rum drinkers generally prefer a darker, aged product. However, individual tastes vary among the rum consuming population.

Recently spice rums have been developed in which the rum is mixed with cinnamon, pineapple or banana. Some producers, such as Angostura of Trinidad have begun marketing tropical, fruity rums such as mango and passion fruit, hoping to attract younger, female customers. Bacardi has begun to offer many varieties of flavoured rum including vanilla, raspberry and coconut. Flavoured rums have become very popular and now account for over 30% of all rum sales. The variety of product offerings has increased not only with flavouring, but also with mixtures, such as Bacardi's new Ciclon product which is a mixture of rum, tequila, and lime.

THE RUM INDUSTRY

Structurally the rum industry is a very fragmented industry. Many rum producers are small, family run businesses. Rum is distilled in many parts of the world; however, most well-known brands come from the Caribbean including the world's most popular brand Bacardi of Puerto Rico, Appleton of Jamaica, Malibu and Mount gAY of Barbados, Barbancourt of Haiti, Flor de Cana of Nicaragua, and Royal Oak of Trinidad. Cuba produces 34 different brands of rum, none, however, can be sold in the United States. Through a French Partner, the Cuban government is selling the much sought after Havana Club brand in Europe.

Rum is produced in many countries outside the Caribbean including India. The UB Group of India recently began to export Indian Rum to the United States and the United Kingdom. Rum is even produced in the United States, although in small quantities. For example, New Orleans Rum is a niche player in the industry producing handcrafted, single barrel, aged rum. While many small players exist in the industry, Bacardi is the dominant firm and market leader. As can be seen in the table below, Bacardi's sales overshadow its competition.

Rum Sales 2003 (Thousands of Nine Liter Cases)

Rum sales have increased in recent years, making rum one of the hottest categories in the industry. Increased popularity of rum is attributed to the increased variety of flavoured products offered, the increasing tendency to mix rum with other products, and the "fun in the sun" image projected by rum as Latin drinks such as the mojito have become more popular. While Bacardi is the market leader, rum production in the Americas did not begin in Puerto Rico, but in Barbados.

The country is known for its banking and insurance industries, but perhaps is better known for its rum. The oldest and most popular brand of rum produced in Barbados is Mount Gay Rum. Recently, Mount Gay Rum celebrated its 300thyear of producing its sugar-based alcoholic beverage, making Mount Gay the oldest rum maker in the world. It is generally believed that rum was first produced on the Mount Gay Estate in 1663, however, written records date back only to 1703. Nevertheless, the written record still makes Mount Gay the longest lasting rum producer.

Mount Gay Rum Estate is located in a northwest parish of Barbados, once known as Mount Gilboa. After several previous owners, John Sober brought the property and distillery and hired Sir John Gay Alleyne to manage the operations. After the death of Sir John, the site was renamed Mount Gay in his honour. The plantation was later purchased by a business man named Aubrey Ward, who introduced Mount Gay Rum to the global French company, Remy Cointreau; yet the family still maintains involvement in the plantation and a financial interest in the company.

Mount Gay Rum uses molasses, not sugar juice to make its rum. Molasses derived from Barbados sugar cane is mixed with pure Barbados water and distilled in two separate batches. Part of the molasses mixture is placed in a Coffey still to produce a single distillate that has a strong alcohol content. The other part of the mixture is placed in a copper still to make a double distillate, lower in alcohol but more robust in flavour. The two distillates are aged separately in oak barrels once used to age Kentucky bourbon. Once matured, the two distillates are blended together to produce Mount Gay Rum products.

Mount Gay Rum produces its traditional rum called Mount Gay Rum Eclipse, a longer aged rum called Mount Gay Extra Old, and a brandy-tasting rum called Mount Gay Rum Sugar Cane Brandy. Mount Gay also produces a clear, non-aged rum used for mixed drinks. In addition, the company has recently introduced two new products to the U.S market. The introduction of vanilla and mango flavoured rum in the U.S. is an attempt to capture the expanding flavoured rum market. Mount Gay products are sold internationally through distributors in Australia, Hong Kong, Denmark, Italy, Mexico, the United States, and the United Kingdom. The largest market for Mount Gay Rum is the United States, however, the company reports that it has strong sales in Canada, the Caribbean, and Europe, and that those sales are getting even stronger.

Mount Gay Rum has been associated with sailing for centuries,. Barbados is a difficult island from which to sail across the Atlantic due to its prevailing winds and currents. As a sign of sailing ability, sailors would buy a barrel of Mount Gay Rum before returning to Europe. The possession of this rum indicated that the sailor had visited the island and had the skill to make the transatlantic voyage from Barbados. Today, Mount Gay Rum keeps the tradition alive by sponsoring over 100 regattas worldwide. The regattas allow Mount Gay Rum to promote its products in various parts of the world.

FUTURE CHALLENGES

Mount Gay Rum faces increasing challenges in order to retain its independence. The dominance of Bacardi in the market and many small producers makes it difficult to compete. Mount Gay Rum has relied on tradition as a competitive advantage in the past but that may no longer be enough. The increasing marketing sophistication of Bacardi and fragmentation of product categories places smaller producers at a disadvantage. In addition, with falling trade barriers, Caribbean countries are facing increased competition from Latin America and Asian companies

As Mount Gay looks to the future, it must consider the current trends that may help or hinder its competitive position. The increasing popularity of rum is a positive trend, however, beverage trends can be short-lived and Mount Gay must be aware of the increasing market power of its biggest competitor, Bacardi.

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